Analysts: Why No More Easing Would Be a Good Thing

This year investors have been hawkishly observing every Federal Reserve event, hunting for indications of more monetary easing in the form of quantitative easing (QE), and global equity markets are taking a hit as expectations of further easing fade, but some analysts believe investors should be cheering.

Wednesday the Federal Reserve released the minutes from their last meeting held on July 31 and Aug. 1.

The release of the minutes triggered an immediate move in the markets, as stocks pared their losses and the dollar weakened against the euro, according to MarketWatch.

Stoking optimism about the prospect of a third round of QE was a statement in the minutes that said “many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

Bill Gross, co-chief investment officer at the bond giant Pimco, tweeted that QE3 and extended period language are now an 80 percent probability.

But Thursday, the markets began to retreat, as it appeared that the statement might not be as indicative of Fed action as first thought.

This cycle of elevated expectations for QE3 leading to rallies that quickly deflate in disappointment have been seen numerous times this year.

But according to CNBC, some analysts point out that having the Fed on the sidelines is a good thing.

Monetary stimulus, such as QE3, is an unconventional policy, and although it might boost the markets, it is an indication of bad times and would signal dire straits for the U.S. economy, CNBC says.

“Any form of QE is a last resort: an admission that other monetary tools are not working. No QE suggests there is no panic,” Peter Esho, chief market analysts at City Index, tells CNBC. “So the fact that they (the Fed policymakers) are not pushing ahead is a positive thing.”